Must Fly, I've Some Shopping To Do
Asia's airports are turning into upscale shopping malls for well-heeled travellers.
but retailers need to know their market - these buyers don't hang about

It's early morning at Singapore's Changi airport. Executives bark into their
mobile phones to confirm 10 a.m. meetings in Kuala Lumpur, while flight crews
walk briskly toward the departure gates. Hovering near the duty-free perfume
counter is a bearded man in a dark suit. His gaze is fixed on two Japanese
women who are fretting over which of two scents they like best. In the end,
they buy both.

Sunil Tuli makes a mental note of their decision, and then switches his attention
to a knot of shoppers at another counter. Tuli isn't idly people-watching
between flights, however. As managing director of duty-free retailer Weitnauer
Singapore Pte. Ltd. - the local operation of Swiss-based Weitnauer Group
- he needs to know what people buy, and why. So far, he seems to be succeeding.
In less than two years, Weitnauer Singapore has opened six shops at Changi,
and has a 60-strong payroll.

Upstairs in his office at Changi, Tuli enthuses about the prospects for his
company's joint venture with Hamleys, London's oldest and biggest toyshop.
A toy store in an airport's duty-free area? "Why not?" says Tuli. "That busy
executive from Moscow who forgot to pick up a Mighty Morphin Power Ranger
for his son and who has only 20 minutes left to catch his flight will thank
us when he sees Hamleys."

Airport Bazaars

Annual growth of 8.5 percent in international passenger arrivals - many of
them cash-rich, time-poor executives - has helped make duty-free shopping
a boom industry in Asia and the Pacific. In 1995 the region accounted for
30.5 percent of global duty-free sales of $20.5 billion; current trends suggest
it could hit 35 percent of the total by 2000. Hong Kong's Kai Tak was the
region's No. 1 duty-free airport in 1995 with revenue of $400 million, with
Changi in second place on sales of $358.8 million. Only Honolulu and London's
Heathrow airports raked in more.
No longer is duty-free shopping just about loading up with as much cut-price
liquor and tobacco as customs regulations back home allow. Instead, airports
are increasingly becoming upscale bazaars, retailing premium goods such as
jewelry, electronic products, gourmet foods and fashion accessories.

That's why LVMH Moet Hennessy Louis Vuitton, the world's biggest luxury-goods
maker, is stumping up $2.47 billion for 58.8 percent control of DFS Group
Ltd. (formerly known as Duty Free Shoppers) in a deal announced in December.
DFS is easily the duty-free market leader, ringing up annual sales of more
than $3 billion, mainly from the Pacific Rim.

LVMH - which owns premier brands such as Christian Dior, Dom Perignon and
Guerlain - dug deep because it wants to tap directly into some of its hottest
markets. Says the French company's president, Bernard Arnault: "LVMH has
long considered the distribution of luxury goods in the Asia-Pacific region
and emerging markets to be key to its overall growth in sales and profitability."

Luxury-goods makers are looking to create new duty-free marketing niches.
Last year, LVMH's Guerlain launched a lipstick called Bleu Voyage, available
exclusively at airports. In Europe, Estee Lauder followed suit with Lipstick
Express, a fast way of matching colors for women in a hurry. Camus of France
recently collaborated with DFS to introduce Josephine, a cognac on sale only
at duty-free outlets.

Duty-free shopping has come a long way since DFS was established in the early
1960s as a single concession at Kai Tak airport by two U.S. entrepreneurs,
Robert Miller and Charles Feeney. They exploited a market that dates back
to earlier days of maritime commerce, when seamen could buy liquor and tobacco
tax-free provided they didn't quaff or smoke the goods in the host country.
Miller and Feeney's initial targets were the swarms of Japanese tourists
passing through Kai Tak. High taxes on imported goods in Japan made the airport's
duty-free goods look like a steal.

Now, competition to win duty-free franchises is fierce - and lucrative for
airports. Changi's concession fees (for all stores and restaurants), for
instance, topped $175 million in the 12 months to March 1996, providing 34
percent of its operating income and $43 million more than it earned from
landing and parking charges levied on airlines. In Thailand, JMT Duty Free
Ltd. and Bangkok Airport Duty-Free Co. have jointly agreed to pay $280 million
to operate duty-free shops at Don Muang Airport in the five years to 2002.

Asia's current airport building boom should give a further boost to on-site
shopping. Hong Kong's Chek Lap Kok airport, due to open in April 1998, will
have 120 retail outlets, five times the number at Kai Tak. Kuala Lumpur's
new airport in Sepang will also enhance the duty-free experience when it
opens next year: Its 100 shops will be housed in an artificial tropical forest.
Changi, ever alert to competition, is opening a third terminal in 2001.

Moreover, duty-free shopping has expanded out of airports. Usually such outlets
are located in prime downtown locations or swish hotels, offering travelers
the chance to order a limited range of goods and collect them later at the
airport.

Inbound Duty-Free

In the Philippines, however, off-airport duty-free shops are more like department
stores, stocked with imported merchandise ranging from U.S. breakfast cereals
to farm equipment. They are mainly aimed at returning overseas Filipino workers,
who have to pay U.S. dollars and are allowed a spending limit of $2,000.
Other retailers complain bitterly that the system is widely abused. Not surprisingly,
the government-owned Duty Free Philippines Inc. disagrees. In 1995 it was
the world's No. 4 duty-free operator, with more than half its sales of $355.4
million coming from Manila's huge Fiesta Shopping Center.

Duty-free retailers elsewhere in the Asia-Pacific region have to try harder
to maximize their spiraling sales potential. "We have the passenger captive
for 45 minutes," says Nick Hillyard, business development director with Nuance
Australia Pty. Ltd., a duty-free affiliate of Swissair. "We have to be innovative
and dynamic: Should [the passenger] savor a nice cup of cappuccino on which
he'll spend $2, or do you want to sell him that Cartier watch, worth $2,000?"

Even the busiest of business travelers keeps an eye open for a bargain. Singapore-based
Sanjiv Misra, India country head for investment bank Goldman Sachs (S) Pte.,
is no exception. He is grateful to an old college chum for the tip that brand-name
ties are sold at bargain prices at Amsterdam's Schipol airport. "I'm now
clearly focused," says Misra. "Ties in Amsterdam, liquor in Singapore."